Will pay TV providers shut down Hulu?

One of pay TV providers’ biggest fears -- video cord-cutting in favor of Internet video – may have seemed chillingly more real as comScore reported that NBC and Fox’s free online TV venture Hulu attracted 38 million viewers in July – 4 million more than Time Warner Cable (NYSE:TWC). But even with its impressive viewership numbers and more than 200 Fortune 500 advertisers, the service doesn’t stand a chance against the cable companies and more recently telecom service providers that make the move into online video, according to Mike Manzo, chief marketing officer at Openet, provider of transactional intelligence among other fixed and mobile solutions.

Similar to Move Networks, Openet is focused on monetizing pay TV providers’ online ventures, and Manzo maintains this will be easier for the cable companies than it is for the online-only players. Comcast is trialing its OnDemand service with 5,000 homes, letting them watch programs online if they subscribe to a pay TV service from the cableco. Chief Operating Officer Stephen Burke also told investors today that Comcast would rollout TV Everywhere, its online venture with Time Warner, as part of a national pilot within 30 to 60 days.

Leading telcos Verizon and AT&T have also announced their intentions to make their content available online in some capacity. AT&T recently introduced a beta version of a new web portal, AT&T Entertainment, to house free TV shows and movie clips, while Verizon launched a trial of TV Everywhere, although only with two networks to start.

The main difference between Hulu and these service provider initiatives, Manzo said, is that Hulu has no way to accurately measure how many people tune in for its programming. With ad budgets tighter than ever, this discourages a lot of would-be advertisers. But, if service providers are part of this equation, that could change the game. As the market stands today, Manzo said cable operators are better positioned than telcos to capitalize on the opportunity because they have a larger customer base, but telcos are looking towards the three-screen opportunity as well.

“You can’t start cross-selling services before you have someone to cross-sell them to,” Manzo said. “TV Everywhere is a service fundamentally designed to cross-sell content via different means. Whether they charge for it or give it free is less important. What is important is that you are trying to get subscribers to use more from you.”

Hulu uses Web technology to track its user base, but doesn’t require a user profile to view its content. As such, they can’t associate their viewers with specific market segments to target ads, Manzo said. The second issue, he said, is that of cross-selling. Advertisers increasingly want to advertise on more than just the Web or TV. They want a multimedia campaign with several components, including Web, TV, mobile and traditional mediums. “Multimedia campaigns are important, so any one measurement technology that doesn’t allow you to get a view of a market segment across multiple mediums is not as valuable as one that does,” Manzo said.

Operators know granular details about every subscriber they have, so the ability to look at them across platforms is attractive. They also have content relationships already in place, so negotiating relationships to extend that content across screens is easy, Manzo said. Cable and telcos will able to tell their advertisers and content providers the percentage of consumers who watched their content on both the TV and online, as well as what market segment they fall into. These statistics, however, might not come from a third party until 2011. At least one major TV audience measurer – the Nielson Media Research – said today it would not widely measure Internet viewing from TWC’s TV Everywhere or Comcast’s OnDemand Online until 2011.

While the pay TV providers will continue to compete against one another, as well as battle online providers like Hulu, there may also be room for all. Manzo said that the Hulu model works for consumers who have no TV provider, but with the caveat that the majority of consumers do own a TV – on average, three per home – and watch around eight hours of TV per day per household. So to think that any significant number of consumers will go to a different portal to get access to content they already pay for is unlikely, he said.

“What all this really represents is the desire of the operators to embrace a new set of business models,” Manzo said. “It is no longer about a subscriber land-grab; it is much more about serving the subscribers you have more deeply, meaning cross-selling and up-selling and personalized services.”